This morning, the U.S. Supreme Court granted certiorari in Township of Mount Holly, New Jersey, et al. v. Mt. Holly Gardens Citizens in Action, Inc., et al. (No. 11-1507). The case has been watched closely by financial institutions because it raised questions about the viability of disparate impact claims under the Fair Housing Act ("FHA"). Disparate impact theory allows government and private plaintiffs to establish "discrimination" based solely on the results of a neutral policy, without having to show any intent to discriminate - or even in the absence of an intent to discriminate.

The Court has agreed to address one of two disparate impact questions presented in a petition from the Township of Mount Holly, New Jersey (and other appellants) - specifically the threshold question of whether disparate impact claims are cognizable under the FHA. Though not a lending case, the case could offer the Supreme Court its first opportunity to rule on the issue of whether the FHA permits plain­tiffs to bring claims under a disparate impact theory. Last year, the parties in another fair housing case brought before the Court, Gallagher v. Magner, 619 F.3d 823 (8th Cir. 2010), withdrew the case before the Court had an opportunity to decide the issue.

To date, eleven federal courts of appeals have upheld the cognizability of disparate impact claims under the FHA (Title VIII of the Civil Rights Act of 1968). They have done so based on their analysis of the Supreme Court's then-current Title VII jurisprudence regarding employment discrimination - which the appellate courts interpreted as permitting disparate impact claims - and a conclusion that disparate impact claims are consistent with the purposes of the FHA. In the seminal employment disparate impact case Griggs v. Duke Power, 401 U.S. 424 (1971), the Court held that a power company's neutral requirement that all employees have a high school education regardless of whether it was necessary for their job was discriminatory under Title VII because it had a disparate effect on African-Americans. However, the Court subsequently has issued a series of opinions, culminating in Smith v. City of Jackson, 544 U.S. 228 (2005), that call into question the prior appellate court holdings regarding the FHA into question. In City of Jackson, the Court held that employment-related disparate impact claims are grounded in Title VII's specific statutory text, not merely in the broader purpose of the legislation. Since City of Jackson, the courts of appeals have offered almost no guidance as to whether the FHA's statutory text permits disparate impact claims.

Earlier this year, the Department of Housing and Urban Development issued a rule on the use of disparate impact under the FHA that codified a three-step burden-shifting approach to determine liability under a disparate impact claim. Citing that rule, among other things, the government urged the Court not to grant cert. and instead allow courts to implement the HUD rule.

While the Court now may have the opportunity to resolve the basic question of whether disparate impact claims are cognizable under the FHA, it could bypass certain, more nuanced issues relating to how such claims should be analyzed and the means by which statistical evidence should be evaluated in context of that analysis. These issues were raised in a multi-part second question on which cert. was not granted. Additionally, the question before the Court is whether disparate impact claims are cognizable under Section 804 of the FHA. Depending on the Court's analysis, the question of whether Section 805 of the FHA - the section specifically applicable to mortgage financing - permits disparate impact claims may remain an open issue

The parties in the Mt. Holly case have been involved in well-publicized settlement meetings, which will continue this week. For this reason, the prospect exists that this matter may also be resolved prior to the Court having a chance to determine the question it has certified for review.

If the parties do not resolve the matter, the Court likely will hear the case in the fall and will issue a ruling in the spring of 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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